Managing outlying trading orders

ABSTRACT

According to one embodiment, a method of managing trading is provided. In a market for a particular type of instrument, electronic data including buy orders and sell orders are received from a plurality of traders. Each buy order has an associated bid price and each sell order has an associated offer price. A determination is made of whether the particular trading order is an outlying trading order by electronically determining whether the particular trading order differs from at least one comparison price by more than a threshold value. If it is determined that the particular trading is an outlying trading order, a restrictive action is taken regarding one or more trading orders. For example, if a trader subsequently submits another trading order that would trade with the outlying trading order, an electronic alert message may be sent to the trader and the subsequent trading order may be prevented from trading with the outlying trading order at least temporarily.

RELATED APPLICATION

This application is a continuation-in-part of U.S. application Ser. No.10/911,879 filed Aug. 4, 2004 entitled “System and Method for ManagingTrading Using Alert Messages for Outlying Trading Orders” by Joseph C.Noviello et al. (Attorney Docket No. 069547.0205), which is incorporatedherein by reference in its entirety.

TECHNICAL FIELD OF THE INVENTION

This invention relates in general to market trading and, moreparticularly, to a system and method for using alert messages foroutlying trading orders (such as buy and sell orders).

BACKGROUND OF THE INVENTION

The cornerstone of economic activity is the production and consumptionof goods and services in a market economy. Economic efficiency andmarket performance are measured by the distribution of such goods andservices between a buyer and a seller. The value of goods and servicesis usually expressed in a currency of denomination, such as UnitedStates dollars. Such economic activity extends beyond national borders.The trading of goods and services occurs across international borders,creating a market in which currency itself is traded and is governed bythe laws of supply and demand.

Throughout history, many different approaches have been adopted to bringbuyers and sellers of goods, services, and currency together, each withthe key objective of permitting transactions at or as close as possible,to the “market” price of the tradable item. The market price is theprice (in given currency terms) that a fully educated market willtransact selected products. In order to achieve this, all potentialbuyers and sellers should have full and equal access to the transaction.The buyer and seller transaction must be structured to operate at verylow costs or it will distort the market price of the tradable items withartificially high transaction costs. The two keys to effective buyer andseller transactions are full access of expression and knowledge and lowtransaction costs. However, these are often conflicting yetnecessitating trade-offs between trading efficiency and marketknowledge.

In recent years, electronic trading systems have gained a widespreadacceptance for trading items, such as goods, services, and currency. Forexample, electronic trading systems have been created which facilitatethe trading of financial instruments such as stocks, bonds, currency,futures, or other suitable financial instruments. In particular,electronic trading systems have become popular for the trading ofsecurities, particularly for the trading of fixed-income securities,such as United States Treasuries, United Kingdom Gilts, EuropeanGovernment Bonds, and Emerging Market debts, and non-fixed incomesecurities, such as stocks.

Many of these electronic trading systems use a bid/offer process inwhich traders submit buy (or bid) and sell (or offer) orders for aparticular tradable instrument. The buy and sell orders are received bya trading platform and placed onto a trading exchange for the particulartradable instrument. Received buy orders may be placed in a buy orderqueue, or stack, and received sell orders may be placed in a sell orderqueue, or stack. Received orders may be placed into such stacks invarious different manners, such as using a FIFO (first in, first out), afirst buyer/first seller system as detailed in U.S. Pat. No. 6,560,580,or based on the bid and offer prices associated with each of thereceived buy and sell orders, for example.

Buy and sell orders received and placed onto a trading exchange can beposted electronically (e.g., using a computer interface) and revealed toall market participants. In some markets, the bid and offer prices ofbuy and sell orders, respectively, are displayed in a numerical formathaving (a) a whole number component, which may be referred to as a“handle,” and (b) a fractional number component, which may be expressedas a decimal, a fraction, a combination of a decimal and fraction, orotherwise expressed. For example, a bid price displayed as 94.26¼includes a whole number (or handle) component of “94” and a fractionalnumber component of “0.26¼.” Similarly, an offer price displayed as 523/32 includes a whole number (or handle) component of “52” and afractional number component of “ 3/32.” As another example, a bid oroffer price displayed as 100.12 includes a whole number (or handle)component of “100” and a fractional number component of “0.12.”

Often, an order having a price that differs by a relatively large amountfrom the current contra market for the same instrument, which may bereferred to as an “outlying order,” is promoted to the top of an orderstack, such as when no better order is currently present, for example.In some instances, a trader may mistakenly attempt to trade with such anoutlying order without realizing the actual price of outlying order,such as when the trader is concentrating only on the fractional numbercomponent of existing orders. For example, when an order that has afractional number component similar to the current market but a wholenumber (or handle) component that is different from the current market(e.g., one or more points higher or lower than the current market) ispromoted to the top of an order stack, traders may place ordersattempting to trade with such an outlying order without realizing thatthe handle of the outlying order differs from the current market. Inother words, the trader may have mistakenly viewed or considered onlythe fractional number component of the outlying order when submittinghis order. In any event, the resulting executed trade is typicallydisadvantageous to the mistaken trader, who may then notify the tradingplatform of the mistaken trade. The trading platform may then have toundo one or more executed trades with the outlying order, which mayrequire the trading platform to halt trading on the instrument, andwhich may cost the trading platform or either customer both time andmoney as a result of the ensuing confusion over whether a trade is to becancelled or not.

SUMMARY OF THE INVENTION

In accordance with the present invention, system and methods areprovided for determining whether a trading order (such as a buy or sellorder, for example) is an outlying order. Systems and methods are alsoprovided for using alert messages for outlying trading orders.

According to one embodiment, a method of managing electronic trading isprovided. In a market for a particular type of instrument, electronicdata including buy orders and sell orders are received from a pluralityof traders. Each buy order has an associated bid price and each sellorder has an associated offer price. Each of the received buy orders andsell orders are placed on an electronic trading exchange or marketplacesuch that the buy orders and sell orders may be executed. Adetermination is made of whether the particular trading order is anoutlying trading order by electronically determining whether theparticular trading order differs from at least one comparison price bymore than a threshold value. The comparison price may be anotherexisting price, a price of a previous trade, a price determined based onone or more other markets, or any other suitable comparison price. If itis determined that the particular trading order is an outlying tradingorder, a restrictive action is taken regarding one or more tradingorders. For example, if a trader subsequently submits another tradingorder that would otherwise match and execute a trade with the outlyingtrading order, an electronic alert message may be sent to that traderand the subsequent trading order may be prevented from trading with theoutlying trading order at least until a response to the alert message isreceived.

According to another embodiment, a system for managing trading isprovided. The system includes a computer having a processor, and acomputer-readable medium coupled to the computer. The computer-readablemedium includes a program. When executed by the processor, the programis operable to receive electronic data including trading orders from aplurality of traders in a market, each trading order having anassociated price; place each of the received trading orders on anelectronic trading exchange such that the trading orders may beexecuted; determine whether the price of a particular trading orderdiffers from a comparison price by more than a threshold value; and ifit was determined that the price of the particular trading order differsfrom the comparison price by more than the threshold value, take arestrictive action regarding one or more trading orders.

The restrictive action may be taken with respect to either, or both of,the trader placing the outlying trading order or the trader attemptingto execute on the outlying trading order. The possible restrictiveaction is not limited to an alert message and may include other actionssuch as, for example, preventing or restricting promotion of theoutlying order to the top of a bid or offer stack, preventing thedisplay of the outlying order in a bid or offer stack (or modifying thedisplay of the outlying order, such as by displaying the outlying orderin a different color, for example), and preventing traders fromexecuting trades on the outlying order.

Various embodiments of the present invention may benefit from numerousadvantages. It should be noted that one or more embodiments may benefitfrom some, none, or all of the advantages discussed below.

One advantage of the invention is that an electronic trading system isprovided in which outlying trading orders (such as a buy order having abid price significantly lower than the current market or a sell orderhaving an offer price significantly higher than the current market) areidentified and alert messages are sent to traders attempting to executea trade on such outlying trading orders. An electronic alert message maynotify the trader that the price of his trading order may be mistakenand may provide the trader an opportunity to correct the mistaken price.As a result, the number of mistaken trades in a market may be reduced,thus saving the trading platform providing access to the market bothtime and money that would otherwise be spent identifying and undoing orotherwise managing mistaken trades.

Other advantages will be readily apparent to one having ordinary skillin the art from the following figures, descriptions, and claims.

BRIEF DESCRIPTION OF THE DRAWINGS

For a more complete understanding of the present invention and forfurther features and advantages, reference is now made to the followingdescription, taken in conjunction with the accompanying drawings, inwhich:

FIG. 1 illustrates an example system for managing trading using alertmessages for outlying trading orders in accordance with an embodiment ofthe invention;

FIG. 2 illustrates an example method of identifying outlying tradingorders by comparing trading orders with contra market prices, andsending alert messages to traders attempting to trade on such outlyingtrading orders, in accordance with an embodiment of the presentinvention; and

FIG. 3 illustrates an example method of identifying outlying tradingorders by comparing trading orders with previous trade prices, andsending alert messages to traders attempting to trade on such outlyingtrading orders, in accordance with an embodiment of the presentinvention.

DETAILED DESCRIPTION OF THE DRAWINGS

Example embodiments of the present invention and their advantages arebest understood by referring now to FIGS. 1 through 3 of the drawings,in which like numerals refer to like parts. In general, according to atlease one embodiment, an electronic trading system is provided thatidentifies a buy or sell trading order having an outlying bid or offerprice and sends an electronic alert message to a trader who submits asubsequent order in an attempt to execute a trade on the outlying buy orsell order. The alert message may provide the trader an opportunity tochange, or correct, the price of the order, and the system may preventthe trader's order from being executed or even placed on the electronictrading exchange until the system receives a response to the alertmessage from the trader.

In some embodiments, for example, buy and sell orders may be displayedin “stacks” on an electronic trading exchange or marketplace and maymigrate to the front of such stacks based on various rules or criteria.For example, buy orders having the highest current bid price may migrateto the front of a buy order stack and sell orders having the lowestcurrent offer price may migrate to the front of a sell order stack.

It should be understood that in some situations, references to the “toporder” or the “top of a stack” may refer to the best existing (buy orsell) order or the order at the front of a stack of orders, which ordersmay not be located at the physical “top” of their respective stack. Forexample, in particular embodiments, the best sell order may be at thebottom of a stack. In such embodiments, the existing sell order havingthe lowest offer price may be actually located in a view physicallybelow the other existing sell orders, such existing sell order may bereferred to as the top sell order or the sell order at the top of a sellorder stack.

In other embodiments, a bid-offer stack may be represented horizontallywherein existing buy orders are displayed as a horizontal list andexisting sell orders are displayed on the other side of a horizontallist.

For the purposes of the present document, irrespective of where they arephysically located in an order stack, the existing buy order having themost aggressive bid price may be referred to as the top buy order, orthe buy order at the top of the buy order stack, and the sell orderhaving the most aggressive offer price may be referred to as the topsell order, or the sell order at the top of the sell order stack. Thus,it should be understood that in some situations, references to the “toporder” or the “top of a stack” may refer to the best existing order orthe order at the front of a stack of orders, irrespective of thearrangement of that stack.

When a buy or sell order is promoted to the top of the buy order stackor the sell order stack, respectively, the system determines whether thenewly promoted order is an outlying order by electronically determiningwhether the price of the newly promoted order differs from the price ofthe existing (or last existing if there are none currently existing)contra market by more than some threshold value, which may varyaccording to market conditions. For example, the system may determinewhether a newly promoted sell order is an outlying order byelectronically determining whether the offer price of the newly promotedsell order exceeds the bid price of the current top buy order by morethan the threshold value. Similarly, the system may determine whether anewly promoted buy order is an outlying order by electronicallydetermining whether the bid price of the newly promoted buy order isless than the offer price of the current top sell order by more than thethreshold value. The system may also determine whether newly placedorders are outlying orders in a similar manner.

It should be understood that in some situations, references to the “toporder” or the “top of a stack” may refer to the best existing (buy orsell) order or the order at the front of a stack of orders, which ordersmay not be located at the physical “top” of their respective stack. Forexample, as discussed below in greater detail, in particularembodiments, buy orders are displayed on one side of a vertical list ofnumbers and sell orders are displayed on the opposite side of the samevertical list of numbers such that both buy orders and sell orders arearranged by price from high to low moving downward along the verticallist of numbers. Is such embodiments, although the existing sell orderhaving the lowest offer price is actually located below the otherexisting sell orders, such existing sell order may be referred to as thetop sell order or the sell order at the top of the sell order stack.

In another embodiment, when a buy or sell order is promoted to the topof the buy order stack or the sell order stack, respectively, the systemdetermines whether the newly promoted order is an outlying order byelectronically determining whether the price of the newly promoted orderdiffers from the price of a previous trade (such as the price at whichthe most recent trade was executed, for example) by more than somethreshold value. As mentioned above, the threshold values may varyaccording to market conditions. For example, the threshold values may bedetermined and/or updated based on the historical or current volatilityof related markets. Similarly, the value to which the order beinganalyzed is compared (i.e., to determine whether a threshold isexceeded) may itself be equal to or based on a value obtained fromhistorical or current related market analysis.

In yet another embodiment, a confluence of the two embodiments above maybe used whereby the system determines whether the newly promoted orderis an outlying order by electronically determining whether the price ofthe newly promoted order differs from both (1) the price of the bestcontra market and (2) the price of a previous trade by more than somethreshold value. Such a methodology may be used, for example, in athinly traded and/or fast moving market to ensure that orders areidentified as outlying orders only if the price of such an order issufficiently different from both the nearest contra price and the lasttraded price.

In still other embodiments, when one or more trading orders in a tradingsystem order stack (e.g., a buy order stack or a sell order stack) areremoved, the system may determine whether the new top order in thatstack is an outlying order based on one or more criteria. If the new toporder in that stack is determined to be an outlying order, the systemmay prevent the outlying order from being promoted to the top of itsorder stack on a trading display or electronic price feed, thus leavingone or more open spaces at the top of the order stack above the outlyingorder. This may notify other traders that the outlying order is indeedan outlying order and that such traders should carefully consider theprice of the outlying order. In addition, the system may send an alertmessage to a trader who submits an order in an attempt to execute atrade on the outlying buy or sell order. It should be noted thatreferences to “top orders” or the “top of the stack” are only intendedas examples to convey a relative position of one order in a stack ascompared to other orders in that stack. The relative positioning oforders in a stack may be accomplished according to any suitablepreferences or criteria. For example, the buy order stack could beconfigured such that the sell order with the lowest offer price ispositioned at the bottom of the stack rather than at the top.

As discussed above, when the system identifies an outlying tradingorder, and a subsequent trader attempts to execute a trade on theoutlying order, the system may automatically generate and communicate analert message to the subsequent trader. The alert message may indicatethat the price of the subsequent trader's order may be mistaken andprovide the subsequent trader an opportunity to change, or correct, theprice of the order, and may be in the format of a computer readablemessage of any type. In some embodiments in which the price of thesubsequent trader's order includes a whole number component and afractional number component (such as 94.26), the system may determinethat the whole number component (94) of the price is erroneous and thusmodify the whole number component (e.g., from 94 to 95) to attempt toarrive at the price that the trader actually intended to submit for theorder. The system may then display this proposed modified price (95.26)to the subsequent trader in the alert message and ask the subsequenttrader whether he or she accepts this proposed modified price. In someembodiments, the subsequent trader may circumvent the alert message byresubmitting his or her order at the original price.

FIG. 1 illustrates an example trading system 10 for managing trading bydetermining outlying orders and using alert messages according to anembodiment of the present invention. As shown, system 10 may include oneor trader workstations 12 and one or more market information sources 14coupled to a trading platform 16 by a communications network 18.

A trader workstation 12 may provide a trader 20 access to engage intrading activity via trading platform 16. A trader workstation 12 mayinclude a computer system and appropriate software to allow trader 20 toengage in electronic trading activity on one or more electronic tradingexchanges or marketplaces provided by trading platform 16. As used inthis document, the term “computer” refers to any suitable deviceoperable to accept input, process the input according to predefinedrules, and produce output, for example, a personal computer,workstation, network computer, wireless data port, wireless telephone,personal digital assistant, one or more processors within these or otherdevices, or any other suitable processing device. A trader workstation12 may include one or more human interface, such as a mouse, keyboard,or pointer, for example.

Traders 20 may include any entity, such as an individual, group ofindividuals or firm, that engages in trading activity via trading system10. For example, a trader 20 may be an individual investor, a group ofinvestors, or an institutional investor. Traders 20 may also includemarket makers, such as any individual or firm that submits and/ormaintains both bid and ask orders simultaneously for the sameinstrument.

Traders 20 may place various trading orders 22 onto one or moreelectronic trading exchanges or marketplaces provided by tradingplatform 16. Trading platform 16 may provide any suitable type ofelectronic trading exchanges or marketplaces for trading orders 22, suchas for example, auction-type exchanges, entertainment-type exchanges,and electronic marketplaces for trading various financial instruments(such as stocks or other equity securities, bonds, mutual funds,options, futures, derivatives, swaps, and currencies, for example). Suchtrading orders 22 may include buy orders 24, sell orders 26, or both,and may be any type of order which may be managed by a trading platform16, such as market orders, limit orders, day orders, open orders, GTC(“good till cancelled”) orders, “good through” orders, an “all or none”orders, or “any part” orders, for example and not by way of limitation.

Each buy order 24 may be at least partially defined by a bid price andsize, while each sell order 26 may be at least partially defined by anoffer price and size. The price for each order—in other words, the bidprice for each buy order 24 and the offer price for each sell order26—may include (a) a whole number component, which may be referred to asa “handle,” and (b) a fractional number component, which may beexpressed as a decimal, a fraction, a combination of a decimal andfraction, or otherwise expressed. For example, in a market in which thetick size is ¼ of 1/32 (i.e., ¼/32) of a point, a price displayed as94.26¼ is defined by a handle of 94 and a fractional number component of26¼, which represents 26¼/32 of a point (or approximately 0.8203). The ¼may also be represented as 2/8 making a price display of 94.262. Table 1illustrates example prices, example formats in which prices may bedisplayed by trading platform 16, the handle for such prices, and thefractional number component of such prices.

TABLE 1 Example formats for displaying prices and the components of suchprices. May be Handle Fractional Price displayed as: component component94 26/32 94.26 94 .26 (i.e., 26/32 or 0.8125) 94^(26 1/4)/32 94.26¼ 94.26¼ (i.e., 26.25/32 or 0.8203) 94^(26 1/4)/32 94.262 94 .262 (i.e.,26.25/32 or 0.8203) 42.5125 42.5125 42 .5125

Market information sources 14 may be operable to communicate marketinformation 28 to trading platform 16. Market information 28 may includeany current and/or historical information regarding one or more marketsfor various instruments, such as price information, price movementinformation, volatility information, and trading volume information, forexample. Market information 28 may also include current and/orhistorical financial or monetary information, such as interest rateinformation and information regarding currencies, for example. Asdiscussed in greater detail below, trading platform 16 may use marketinformation for various purposes, such as for determining and updatingthreshold values 40 used for identifying outlying trading orders 22.Market information sources 14 may include any source or recipient ofmarket information 28 that may communicate such market information 28 totrading platform 16. For example, market information sources 14 mayinclude other trading platforms, marketplaces, trading exchanges(electronic or otherwise), brokers, financial institutions, data vendorsor a Government Statistical Bureau.

Communications network 18 is a communicative platform operable toexchange data or information between trader workstations 12, marketinformation sources 14, and trading platform 16. In a particularembodiment of the present invention, communications network 18represents an Internet architecture which provides traders 20 with theability to electronically execute trades or initiate transactions to bedelivered to an authorized exchange trading floor. Alternatively,communications network 18 could be a plain old telephone system (POTS),which traders 20 could use to perform the same operations or functions.Such transactions may be assisted by a broker associated with tradingplatform 16 or manually keyed into a telephone or other suitableelectronic equipment in order to request that a transaction be executed.In other embodiments, communications system 14 could be any packet datanetwork (PDN) offering a communications interface or exchange betweenany two nodes in system 10. Communications network 18 may alternativelybe any local area network (LAN), metropolitan area network (MAN), widearea network (WAN), wireless local area network (WLAN), virtual privatenetwork (VPN), intranet, or any other appropriate architecture or systemthat facilitates communications in a network or telephonic environment.

Communications network 18 may facilitate real time telephonic voiceconversations (for example, voice conversations communicated via IPtelephony or POTS) wherein the voice of a person (such as a trader 20,broker, or other individual associated with trading system 10, forexample) is encoded and/or digitized for communication viacommunications network 18. Communications network 18 may also facilitatethe transfer of data, files, signaling and/or other digitizedinformation. For the purposes of this document, “non-voice-basedelectronic data” includes all files, signaling and/or other digitizedinformation, but specifically excludes real time voice conversations(such as encoded and/or digitized voice data), that may be communicatedvia communications network 18. In the particular embodiment shown inFIG. 1, trading orders 22 (including buy orders 24 and sell orders 26),alert messages 40 (discussed below), and responses 42 to alert messages40 (discussed below) comprise non-voice-based electronic data. In otherembodiments, some or all trading orders 22, alert messages 40 (discussedbelow) and/or responses 42 to alert messages 40 (discussed below) may becommunicated via real time voice conversations.

Trading platform 16 is a trading architecture that provides access toone or more electronic trading exchanges or marketplaces in order tofacilitate the trading of trading orders 22. Trading platform 16 may bea computer, a server, a management center, a single workstation, or aheadquartering office for any person, business, or entity that seeks tomanage the trading of trading orders 22. Accordingly, trading platform16 may include any suitable hardware, software, personnel, devices,components, elements, or objects that may be utilized or implemented toachieve the operations and functions of an administrative body or asupervising entity that manages or administers a trading environment.

In some embodiments, trading platform 16 may be associated with orcomprise one or more web servers 30 operable to store websites and/orwebsite information 32 in order to host one or more web pages 34. Webservers 30 may be coupled to communication network 18 and may bepartially or completely integrated with, or distinct from, tradingplatform 16. A trading workstation 12 may include a browser application36 operable to provide an interface to web pages 34 hosted by webservers 30 such that traders 20 may communicate information to, andreceive information from, trading module 50 via communication network18. In particular, browser application 36 may allow a trader 20 tonavigate through, or “browse,” various Internet web sites or web pages34 hosted by a web server 30 to provide an interface for communicationsbetween the trader 20 and trading platform 16. For example, one or moreweb pages 34 may facilitate the communication of trading orders 22 fromtraders 20 to trading platform 16, the communication of alert messages40 from trading platform 16 to traders 20, and the communication ofresponses 42 to alert messages 40 from traders 20 to trading platform16.

Trading platform 16 may include a trading module 50 operable to receivetrading orders 22 from traders 20 and to manage or process those tradingorders 22 such that financial transactions among and between traders 20may be performed. Trading module 50 may have a link or a connection to amarket trading floor, or some other suitable coupling to any suitableelement that allows for such transactions to be consummated.

Trading module 50 may be operable to identify buy orders 24 and sellorders 26 having outlying bid or offer prices and to send alert messages40 to the traders 20 who placed such outlying trading orders 22. Asdiscussed above, each such alert message 40 may indicate that the bid oroffer price of the outlying order 22 may be erroneous and may allow therelevant trader 20 to modify bid or offer price for the order 22 or toplace the order 22 at the original price.

As show in FIG. 1, trading module 50 may include a processing unit 52and a memory unit 54. Processing unit 52 may process data associatedwith trading orders 22 or otherwise associated with system 10, which mayinclude executing software 56 or other coded instructions that may inparticular embodiments be associated with trading module 50. Memory unit54 may store software 56, trading orders 22 received from traders 20, aset of trading management rules 58, one or more threshold values 60, andmarket information 28 received from market information sources 14.Memory unit 54 may be coupled to data processing unit 52 and may includeone or more databases and other suitable memory devices, such as one ormore random access memories (RAMs), read-only memories (ROMs), dynamicrandom access memories (DRAMs), fast cycle RAMs (FCRAMs), static RAM(SRAMs), field-programmable gate arrays (FPGAs), erasable programmableread-only memories (EPROMs), electrically erasable programmableread-only memories (EEPROMs), or any other suitable volatile ornon-volatile memory devices.

It should be understood that the functionality provided bycommunications network 18 and/or trading module 50 may be partially orcompletely manual such that one or more humans may provide variousfunctionality associated with communications network 18 or tradingmodule 50. For example, a human agent of trading platform 16 may act asa proxy or broker for placing trading orders 22 on trading platform 16.

It should also be understood that although FIG. 1 illustrates aparticular embodiment of the invention, some or all of the variousautomated functionality provided by system 10 discussed herein may beprovided by any suitable hardware, software, or other computer deviceslocated at, hosted by, or otherwise associated with any one or morecomponents of system 10, including trader workstations 12, tradingplatform 16, communications network 18, and web server 30. Suchautomated functionality may include any automated storage, processing,or communication of data associated with the following functions:generating, transmitting and receiving trading orders 22, alert messages40 and responses 42; determining whether trading orders 22 are outlyingorders; initiating restrictive actions regarding particular tradingorders 22; maintaining and/or managing trading order stacks, includingmanaging the promotion of trading orders 22 within trading order stacks;managing the execution of trades between trading orders 22; andmaintaining and/or managing market information 28, trading managementrules 58, and threshold values 60. Different aspects of suchfunctionality may be provided by different components of system 10.

In some embodiments (such as the embodiment shown in FIG. 1), software56 associated with trading module 50 of trading platform 16 providesvarious functionality discussed herein, including for example, receivingtrading orders 22 from traders 20, placing received trading orders 22 onan electronic trading exchange or marketplace such that the tradingorders 22 may be executed, electronically determining whether particulartrading orders 22 are outlying orders, automatically generating andcommunicating alert messages regarding trading orders having prices thatwould trade with outlying trading orders, and managing the promotion oftrading orders within various trading order stacks.

In other embodiments, some of all of the functionality provided bysoftware 56 in the embodiment shown in FIG. 1 may be provided bysoftware located at, hosted by, or otherwise associated with any one ormore trader workstations 12. For example, software associated with atrader workstation 12 may be operable to receive electronic data inputfrom a trader 20 defining a particular trading order 22 having anassociated price, determine that the price of the particular tradingorder 22 would trade with the price of a determined outlying tradingorder 22, automatically generate an electronic alert message 40regarding the particular trading order 22, communicated the electronicalert message 40 to the trader 20, and prevent the particular tradingorder 22 from trading with the outlying trading order 22 at least untilelectronic data input comprising a response 42 to the alert message 40is received from the trader 20.

As another example, software associated with a trader workstation 12 maybe operable to receive electronic data input from a trader 20 defining aparticular trading order 22 having an associated price, determine thatthe price of the particular trading order 22 would trade with the priceof a determined outlying trading order 22, and as a result of suchdetermination, automatically take a restrictive action regarding theparticular trading order 22.

As yet another example, software associated with a trader workstation 12may be operable to receive electronic data input from a trader 20defining a particular trading order 22 having an associated price,automatically determine whether the price of the particular tradingorder 22 differs from at least one comparison price by more than athreshold value 60, and if it is determined that the price of theparticular trading order 22 differs from the at least one comparisonprice by more than the threshold value 60, automatically generate andcommunicate a notification indicating that the particular trading order22 is an outlying order such that an electronic alert message 40 isautomatically communicated to a subsequent trader 20 attempting to placea subsequent trading order 22 having a price that would trade with theprice of the outlying trading order 22, the electronic alert message 40associated with a restriction regarding a trade between the subsequenttrading order 22 and the particular trading order 22.

As yet another example, software associated with a trader workstation 12may be operable to receive electronic data input from a trader 20defining a particular trading order 22 having an associated price,automatically determine whether the price of the particular tradingorder 22 differs from a previous trade price by more than a thresholdvalue 60, and if it is determined that the price of the particulartrading order 22 differs from the previous trade price by more than thethreshold value 60, automatically taking a restrictive action regardingone or more trading orders 22. Such restrictive action regarding one ormore trading orders 22 may include automatically generating andcommunicating a notification indicating that a restrictive action shouldbe taken regarding a subsequent trading order 22 having an originalprice that would trade with the price of the outlying trading order 22.

As yet another example, software associated with a trader workstation 12may be operable to receive electronic data input from a trader 20defining a particular trading order 22 having an associated price,automatically determine whether the price of the particular tradingorder 22 differs from at least one comparison price by more than athreshold value 60, and if it is determined that the price of theparticular trading order 22 differs from the at least one comparisonprice by more than the threshold value 60, causing a restriction of thepromotion of the particular trading order 22 within a particular tradingorder stack.

Trading module 50 may manage and process trading orders 22 based atleast on electronic marketplace trading management rules 58. Tradingmanagement rules 58 may include rules defining, for example, how todetermine whether particular trading orders 22 are outlying orders, howto generate alert messages 40, how to determine and/or update thresholdvalues 60, and how to manage the promotion of buy orders 24 and sellorders 26 within queues, or stacks, of such orders 24 and 26.

Identifying Outlying Orders Based on Contra Market Prices

In some embodiments, trading management rules 58 generally provide foridentifying outlier trading orders 22 by comparing the price of eachtrading order 22 that is promoted to the top of its respective orderstack (i.e., the buy order stack or the sell order stack) with the priceof the top order 22 in the contra market. For example, when a sell order26 is promoted to the top of the sell order stack, trading module 50determines whether the newly promoted sell order 26 is an outlying orderby electronically determining whether the offer price of the newlypromoted sell order 26 exceeds the bid price of one or more buy orders24 in the buy order stack by more than a threshold value 60. In aparticular embodiments, trading module 50 determines whether the newlypromoted sell order 26 is an outlying order by electronicallydetermining whether the offer price of the newly promoted sell order 26exceeds the bid price of the top buy order 24 by more than a thresholdvalue 60.

When an outlying buy order is identified, trading module 50 initiates oreffects a restrictive action regarding the either, or both of, theoutlying buy order or a subsequent attempt to execute a trade with theoutlying buy order. As discussed above, the restrictive action mayinclude any suitable restrictive action, such as sending an alertmessage 40 to a trader attempting to execute a trade with the outlyingbuy order, preventing the outlying buy order from being promoted oradvanced within the buy order stack, preventing the outlying buy orderfrom being displayed, and preventing other traders from executing tradeson the outlying buy order, for example.

To illustrate, suppose at a particular point in time, the electronictrading exchange or marketplace for a 10-year US Treasury bond includesa buy order stack and a sell order stack including the following buyorders 24 and sell orders 26, respectively:

Buy orders (bid price) Sell orders (offer price) 98.26¼ 98.26½ 98.2699.26 98.25¾

Now suppose that the 98.26½ sell order is removed from the sell orderstack, such as if the 98.26½ sell order is cancelled or traded with anewly received buy order having a bid price at or above 98.26¼. As aresult, the 99.26 sell order is promoted to the top of the sell orderstack. As a result of the 99.26 sell order being promoted to the top ofthe sell order stack, trading module 50 determines whether the 99.26sell order is an outlying order by electronically determining whetherthe 99.26 offer price of the sell order exceeds the bid price of thecurrent top buy order, 98.26¼, by more than the threshold value. Furthersuppose that the current threshold value 60 for a 10-year US Treasurybond is 3/32 of a point. Here, the 99.26 offer price of the top sellorder exceeds the 98.26¼ bid price of the top buy order by more than thethreshold value of 3/32, and thus the 99.26 sell order is determined tobe an outlying sell order.

As a result of determining that the 99.26 sell order is an outlying sellorder, trading module 50 may automatically generate and communicate analert message 40 to any trader who submits a buy order that wouldnaturally trade with the 99.26 sell order. For example, if a subsequenttrader submits a subsequent buy order with a bid price of 99.26 (in anattempt to trade with the 99.26 sell order), trading module 50 mayautomatically generate and communicate an alert message 40 to thesubsequent trader indicating that the bid price of the subsequent buyorder 24 may be mistaken and providing the subsequent trader anopportunity to change, or correct, the price of the subsequent buy order24. One rationale for sending such an alert message 40 is that thesubsequent trader may not have noticed that the handle (i.e., the wholenumber component) of the top sell order had jumped from 98 to 99, andmay have thus intended to enter a bid price of 98.26 rather than 99.26.In addition, as discussed below in greater detail, trading module 50modify the whole number component of the subsequent trader's bid pricefrom 99 to 98 (e.g., to attempt to match the subsequent trader's actualintent), display the proposed modified bid price of 98.26 to thesubsequent trader, and ask the subsequent trader whether he or she wouldlike to place the subsequent buy order 24 at the proposed modified bidprice of 98.26.

Similarly, when a buy order 24 is promoted to the top of the buy orderstack, trading module 50 determines whether the newly promoted buy order24 is an outlying order by electronically determining whether the bidprice of the newly promoted buy order 24 is less than the offer price ofone or more sell orders 26 in the sell order stack by more than athreshold value 60. In a particular embodiments, trading module 50determines whether the newly promoted buy order 24 is an outlying orderby electronically determining whether the bid price of the newlypromoted buy order 26 is less than the offer price of the top sell order26 by more than a threshold value 60. As discussed above, in someembodiments, the “top” sell order 26 is the sell order at the top of thesell order stack, which may or may not be the sell order 26 having thelowest current offer price, depending on the particular embodiment. Whenan outlying sell order is identified, trading module 50 may initiate oreffect a restrictive action regarding the either, or both of, theoutlying sell order or a subsequent attempt to execute a trade with theoutlying sell order. As discussed above, the restrictive action mayinclude any suitable restrictive action.

To illustrate, suppose at a particular point in time, the electronicmarketplace for a 30-year US Treasury bond includes a buy order stackand a sell order stack including the following buy orders 24 and sellorders 26, respectively:

Buy orders (bid price) Sell orders (offer price) 98.26¼ 98.26¾ 97.2798.26¾ 98.27

Now suppose that the 98.26¼ buy order is removed from the buy orderstack, such as if the 98.26¼ buy order is cancelled or traded with anewly received sell order having an offer price at or below 98.26¼. As aresult, the 97.27 buy order is promoted to the top of the buy orderstack. As a result of the 97.27 buy order being promoted to the top ofthe sell order stack, trading module 50 determines whether the 97.27 buyorder is an outlying order by determining whether the 97.27 bid price ofthe buy order is less than the offer price of the current top sellorder, 98.26¾, by more than the threshold value. Further suppose thatthe current threshold value 60 for a 30-year US Treasury bond is 7/32 ofa point. Here, the 97.27 bid price of the top buy order is less than the98.26¾ offer price of the top sell order by more than the thresholdvalue of 7/32, and thus the 97.27 buy order determined to be an outlyingbuy order.

As a result of determining that the 97.27 buy order is an outlying sellorder, trading module 50 may automatically generate and communicate analert message 40 to any trader who submits a sell order that wouldnaturally trade with the 97.27 buy order. For example, if a subsequenttrader submits a subsequent sell order with a offer price of 97.27 (inan attempt to trade with the 97.27 buy order), trading module 50 mayautomatically generate and communicate an alert message 40 to thesubsequent trader indicating that the offer price of the subsequent sellorder 26 may be mistaken and providing the subsequent trader anopportunity to change, or correct, the price of the subsequent sellorder. As discussed above, one rationale for sending such an alertmessage 40 is that the subsequent trader may not have noticed that thehandle (i.e., the whole number component) of the top buy order hadjumped from 98 to 97, and may have thus intended to enter an offer priceof 98.27 rather than 97.26. In addition, as discussed below in greaterdetail, trading module 50 modify the whole number component of thesubsequent trader's offer price from 97 to 98 (e.g., to attempt to matchthe subsequent trader's actual intent), display the proposed modifiedoffer price of 98.27 to the subsequent trader, and ask the subsequenttrader whether he or she would like to place the subsequent sell order26 at the proposed modified offer price of 98.27.

FIG. 2 illustrates an example method of identifying outlying tradingorders 22 by comparing trading orders 22 with contra market prices, andsending alert messages 40 to traders 20 attempting to trade on suchoutlying trading orders 22, in accordance with an embodiment of thepresent invention. The example discussed below regards identifying anoutlying sell order 26 and sending an alert message 40 to a trader 20attempting to trade on such outlying sell order 26. However, it shouldbe understood that the method may similarly apply for identifying anoutlying buy order 24 and sending an alert message 40 to a trader 20attempting to trade on such outlying buy order 24. It should also beunderstood that various other restrictive actions (i.e., other thansending an alert message 40) may be implemented as a result ofidentifying outlying trading orders 22.

At step 100, one or more buy orders 24 and one or more sell orders 26are received from traders 20 and placed onto an electronic tradingexchange or marketplace by trading platform 16. The buy orders 24 andsell orders 26 are placed in a buy order stack (or queue) and a sellorder stack (or queue), respectively, and ordered according to anysuitable criteria, such as using a FIFO (first in, first out) system, aninteractive matching system as detailed in U.S. Pat. No. 6,560,580, orbased on the relative bid and offer prices associated with such receivedbuy orders 24 and sell orders 26, for example.

At step 102, one or more sell orders 26 are removed from the sell orderstack (such as if the one or more sell orders 26 are cancelled or tradedwith one or more buy orders 24). As a result, a particular sell order 26is promoted to the top of the sell order stack, thus becoming thecurrent top sell order.

At step 104, as a result of the particular sell order 26 being promotedto the top of the sell order stack, trading module 50 determines whetherthe particular sell order 62 is an outlying order by determining whetherthe offer price of the particular sell order 26 exceeds the bid price ofthe current top buy order—i.e., the bid price of the buy order 24currently at the top of the buy order stack—by more than a currentthreshold value 60. As discussed in greater detail below, the thresholdvalue 60 may be based on market conditions and may be variable overtime.

If it is determined that the particular sell order 26 is not an outlyingorder, the method may return to step 100 such that other buy orders 24and/or sell orders 26 may be received, placed, traded, cancelled, orotherwise managed. However, if it is determined at step 104 that theparticular sell order is an outlying sell order, trading module 50 maynote the outlying sell order at step 106 and wait for buy orders 24 thatwould naturally cause a trade with the outlying sell order. In somealternative embodiments, the identified outlying sell order may beremoved temporarily from the sell order stack or cancelled altogether.

At step 108, trading platform 16 receives from a subsequent trader asubsequent buy order 24 that would naturally trade with the outlyingsell order. In other words, the bid price of the subsequent buy order 24is greater than or equal to the offer price of the outlying sell order.In some instances, the handle (i.e., the whole number component) of theoutlying sell order may be larger than the current market and thesubsequent trader may have submitted the subsequent buy order 24 withoutrealizing the larger handle of the outlying sell order. In other words,the subsequent trader may have mistakenly considered only the fractionalnumber component of the outlying sell order when submitting his or herbuy order 24.

At step 110, as a result of receiving the subsequent buy order 24 thatwould naturally trade with the outlying sell order, trading module 50automatically generates and communicates an alert message 40 to thesubsequent trader indicating that the bid price of the subsequenttrader's buy order 24 may be mistaken and providing the subsequenttrader an opportunity to change, or correct, the bid price of his or herbuy order 24. In some embodiments, trading module 50 may modify thehandle of the bid price of the subsequent trader's buy order 24 (e.g.,to attempt to match the trader's actual intent), display the proposedmodified bid price to the subsequent trader, and ask the subsequenttrader whether he or she would like to place the subsequent buy order 24at the proposed modified bid price.

At step 112, trading module 50 prevents the subsequent trader's buyorder 24 from being placed on the electronic trading exchange ormarketplace at least until a response 42 to the alert message 40 isreceived from the subsequent trader 20. At step 114, trading module 50receives a response 42 to the alert message 40 from the subsequenttrader 20. If the response 42 indicates that the subsequent trader 20accepts the proposed modified bid price for his or her buy order 24,trading module 50 places the subsequent trader's buy order 24 on theelectronic trading exchange or marketplace at the proposed modified bidprice at step 116. Alternatively, the subsequent trader's response 42may indicate that the subsequent trader 20 declines the proposedmodified bid price for his or her buy order 24. For example, at step118, the subsequent trader 20 may choose to cancel his or her buy order42 in response to receiving the alert message 40. As another example, atstep 120, the subsequent trader 20 may choose to circumvent the alertmessage 40 by resubmitting his or her buy order 24 at the original bidprice. If the subsequent trader 20 resubmits his or her buy order 24 atthe original bid price, trading module 50 may place the resubmitted buyorder 24 on the electronic trading exchange or marketplace at theoriginal bid price and/or execute a trade between the resubmitted buyorder 24 and the outlying sell order (if the outlying sell order isstill available) at step 122.

It should be understood that the techniques discussed above fordetermining whether a sell order 26 is an outlying sell order andsending an alert message to a trader 20 submitting a subsequent buyorder 24 may be similarly used to determine whether a buy order 24 is anoutlying buy order and sending an alert message to a trader 20submitting a subsequent sell order 26.

Identifying Outlying Orders Based on Previous Trade Prices

In some embodiments, trading management rules 58 generally provide foridentifying outlier trading orders 22 by comparing the price of eachtrading order 22 that is promoted to the top of its respective orderstack (i.e., the buy order stack or the sell order stack) with the priceof one or more previous trades. For example, when a sell order 26 ispromoted to the top of the sell order stack, trading module 50determines whether the newly promoted sell order 26 is an outlying orderby determining whether the offer price of the newly promoted sell order26 exceeds the price(s) of one or more previous trades in the electronictrading exchange or marketplace by more than a threshold value 60.Comparing an order price to the price(s) of one or more previous tradesmay comprise comparing the order price to the price(s) at which one ormore previous trades were executed or submitted for execution. In aparticular embodiment, the order price in question is compared with theprice at which the most recent trade was executed or submitted forexecution. When an outlying trading order 22 is identified, tradingmodule 50 may initiate or effect a restrictive action regarding theeither, or both of, the outlying trading order 22 or a subsequentattempt to execute a trade with the outlying trading order 22. Asdiscussed above, the restrictive action may include any suitablerestrictive action.

To illustrate, suppose at a particular point in time, the electronicmarketplace for a 5-year US Treasury bond includes a buy order stack anda sell order stack including the following buy orders 24 and sell orders26, respectively:

Buy orders (bid price) Sell orders (offer price) 93.14½ [traded] 93.14½[traded] 93.14¼ 93.14¾ 93.13¾ 94.13½ 93.13½

Suppose that a trade is executed (or submitted for execution) betweenthe matching 93.14½ buy order and 93.141/2 sell order at the price of93.14½. The 93.14½ buy order and 93.14½ sell order are thus removed fromthe buy and sell order stacks. As a result, the 93.13¼ buy order ispromoted to the top of the buy order stack, thus becoming the currenttop buy order, and the 93.14¾ sell order is promoted to the top of thesell order stack, thus becoming the current top sell order. As a resultof the 93.13¼ buy order and the 93.14¾ sell order being promoted to thetop of the their respective order stacks, trading module 50 maydetermine whether either (or both) of the 93.13¼ buy order and the93.14¾ sell order are outlying orders. Trading module 50 may determinewhether the 93.13¼ buy order is an outlying order by determining whetherthe 93.13¼ bid price is less than the price of the previous trade—here,93.14½ —by more than a threshold value 60. Suppose that the currentthreshold value for 5-year US Treasury bonds is 2/32. Trading module 50would determine that the 93.13¼ bid price of the buy order is not lessthan the 93.14½ trade price by more than the 2/32 threshold value, andthat the 93.13¼ buy order is not an outlying order. (Recall from Table 1that the displayed bid price of 93.13¼ represents an actual bid price of93 13.25/32 and the previous trade price of 93.14½ represents an actualtrade price of 93 14.5/32. Thus, the 93.13¼ bid price is within 2/32 ofthe 93.14½ trade price.)

Similarly, trading module 50 may determine whether the 93.14¾ sell orderis an outlying order by determining whether the 93.14¾ offer priceexceeds the previous trade price of 93.14½ by more than the 2/32threshold value. Trading module 50 would determine that the 93.14¾ offerprice of the sell order does not exceed the 93.14½ trade price by morethan the 2/32 threshold value, and that the 93.14¾ sell order is not anoutlying order.

Next suppose that the 93.14¾ sell order is removed from the sell orderstack, such as if the 93.14¾ sell order is cancelled or traded with anewly received buy order having a bid price at or above 93.14¾. As aresult, the 94.13½ sell order is promoted to the top of the sell orderstack, thus becoming the new current top sell order on the exchange. Asa result of the 94.13½ sell order being promoted to the top of the sellorder stack, trading module 50 determines whether the 94.13½ sell orderis an outlying order by determining whether the 94.13½ offer price ofthe sell order exceeds the previous trade price of 93.14½ by more thanthe 2/32 threshold value. Trading module 50 would determine that the94.13½ offer price of the sell order does exceed the 93.14½ trade priceby more than the 2/32 threshold value, and that the 94.13½ sell order isthus an outlying order. As a result of determining that the 94.13½ sellorder is an outlying sell order, trading module 50 may automaticallygenerate and communicate an alert message 40 to any subsequent traderwho submits a subsequent buy order 24 that would naturally trade withthe 94.13½ sell order. For example, if a subsequent trader submits asubsequent buy order 24 with a bid price of 94.13½ (in an attempt totrade with the 94.13½ sell order), trading module 50 may automaticallygenerate and communicate an alert message 40 to the subsequent traderindicating that the bid price of the subsequent trader's buy order 24may be mistaken and providing the subsequent trader an opportunity tochange, or correct, the bid price of his or her order. In addition, asdiscussed below in greater detail, trading module 50 modify the wholenumber component of the subsequent trader's bid price from 94 to 93(e.g., to attempt to match the subsequent trader's actual intent),display the proposed modified bid price of 93.13½ to the subsequenttrader, and ask the subsequent trader whether he or she would like toplace the buy order 24 at the proposed modified bid price of 93.13¼.

In a similar manner, when trading module 50 determines that a particularbuy order 24 promoted to the top of the buy order stack is an outlyingorder, trading module 50 may automatically generate and communicate analert message 40 to any trader who submits a sell order 26 that wouldnaturally trade with the particular buy order 24.

FIG. 3 illustrates an example method of identifying outlying tradingorders 22 by comparing trading orders 22 with a previous trade price,and sending alert messages 40 to traders 20 attempting to trade on suchoutlying trading orders 22, in accordance with an embodiment of thepresent invention. The example discussed below regards identifying anoutlying sell order 26 and sending an alert message 40 to a trader 20attempting to trade on such outlying sell order 26. However, it shouldbe understood that the method may similarly apply for identifying anoutlying buy order 24 and sending an alert message 40 to a trader 20attempting to trade on such outlying buy order 24. It should also beunderstood that various other restrictive actions (i.e., other thansending an alert message 40) may be implemented as a result ofidentifying outlying trading orders 22.

At step 150, one or more buy orders 24 and one or more sell orders 26are received from traders 20 and placed onto an electronic tradingexchange or marketplace by trading platform 16. The buy orders 24 andsell orders 26 are placed in a buy order stack and a sell order stack,respectively, and ordered according to any suitable criteria, such asusing a FIFO (first in, first out) system, an interactive matchingsystem such as that defined in U.S. Pat. No. 6,560,580, or any systembased on the relative bid and offer prices associated with such receivedbuy orders 24 and sell orders 26, for example.

At step 152, one or more trades are executed between buy orders 24 inthe buy order stack and sell orders 26 in the sell order stack. Each ofthe executed buy orders 24 and sell orders 26 may be removed from theirrespective stacks as they are executed. At step 154, one or more sellorders 26 are removed from the sell order stack (as a result of suchsell order(s) being cancelled or executed (i.e., traded) with one ormore buy orders 24, for example). As a result, a particular sell order26 is promoted to the top of the sell order stack, thus becoming thecurrent top sell order on the exchange or marketplace.

At step 156, as a result of the particular sell order 26 being promotedto the top of the sell order stack, trading module 50 determines whetherthe particular sell order 62 is an outlying order by determining whetherthe offer price of the particular sell order 26 exceeds a previous tradeprice—for example, the price at which the most recent trade at step 152was executed—by more than a current threshold value 60. As discussed ingreater detail below, the threshold value 60 may be based on marketconditions and may be variable over time.

If it is determined that the particular sell order 26 is not an outlyingorder, the method may return to step 150 such that other buy orders 24and/or sell orders 26 may be received, placed, traded, cancelled, orotherwise managed. However, if it is determined at step 156 that theparticular sell order is an outlying sell order, trading module 50 maynote the outlying sell order at step 158 and wait for buy orders 24 thatwould naturally cause a trade with the outlying sell order.

At step 160, trading platform 16 receives from a subsequent trader asubsequent buy order 24 that would naturally trade with the outlyingsell order. In other words, the bid price of the subsequent buy order 24is greater than or equal to the offer price of the outlying sell order.As discussed above, in some instances, the handle (i.e., the wholenumber component) of the outlying sell order may be larger than thecurrent market and the subsequent trader may have submitted thesubsequent buy order 24 without realizing the larger handle of theoutlying sell order.

At step 162, as a result of receiving the subsequent buy order 24 thatwould naturally trade with the outlying sell order, trading module 50automatically generates and communicates an alert message 40 to thesubsequent trader indicating that the bid price of the subsequenttrader's buy order 24 may be mistaken and providing the subsequenttrader an opportunity to change, or correct, the bid price of his or herbuy order 24. In some embodiments, trading module 50 modify the handleof the bid price of the subsequent trader's buy order 24 (e.g., toattempt to match the trader's actual intent), display the proposedmodified bid price to the subsequent trader, and ask the subsequenttrader whether he or she would like to place the buy order 24 at theproposed modified bid price.

At step 164, trading module 50 prevents the subsequent trader's buyorder 24 from being placed on the electronic trading exchange ormarketplace at least until a response 42 to the alert message 40 isreceived from the subsequent trader 20. At step 166, trading module 50receives a response 42 to the alert message 40 from the subsequenttrader 20. If the response 42 indicates that the subsequent trader 20accepts the proposed modified bid price for the buy order 24, tradingmodule 50 places the subsequent buy order 24 on the electronic tradingexchange or marketplace at the proposed modified bid price at step 168.Alternatively, the subsequent trader's response 42 may indicate that thesubsequent trader 20 declines the proposed modified bid price for thebuy order 24. For example, at step 170, the subsequent trader 20 maychoose to cancel his or her buy order 42 in response to receiving thealert message 40. As another example, at step 172, the subsequent trader20 may choose to circumvent the alert message 40 by resubmitting his orher buy order 24 at the original bid price. If the subsequent trader 20resubmits his or her buy order 24 at the original bid price, tradingmodule 50 may place the resubmitted buy order 24 on the electronictrading exchange or marketplace at the original bid price and/or executea trade between the resubmitted buy order 24 and the outlying sell order(if the outlying sell order is still available) at step 174.

It should be understood that the techniques discussed above fordetermining whether a sell order 26 is an outlying sell order andsending an alert message to a trader 20 submitting a subsequent buyorder 24 may be similarly used to determine whether a buy order 24 is anoutlying buy order and sending an alert message to a trader 20submitting a subsequent sell order 26.

Managing the Promotion of Orders in an Order Stack

In some embodiments, trading management rules 58 generally provide foridentifying outlier trading orders 22 on an electronic trading exchangeor marketplace and managing the promotion of such identified outliertrading orders 22 on the electronic trading exchange or marketplace. Forexample, when one or more sell orders 26 are removed from a sell orderstack (such as when such sell order(s) are cancelled or executed (i.e.,traded) with one or more buy orders 24, for example), trading system 30may determine whether to (a) promote the highest remaining sell order 26in the sell order stack to the top of the sell order stack, or (b) tonot promote the highest remaining sell order 26 in the sell order stackto the top of the stack, but rather to leave the one or more positionsin the sell order stack above the highest remaining sell order 26 open,and to send an alert message 40 to any trader 20 that subsequentlysubmits a buy order 24 that would naturally trade with the outlying sellorder 26. As discussed above, references to “top orders” or the “top ofthe stack” are only intended as examples to convey relative positions oforders in a stack, which positioning of orders may be managed accordingto any suitable preferences or criteria. For example, in someembodiments, a bid-offer stack includes a vertical list of numbersrepresenting prices increasing from the bottom to the top of the list,wherein existing buy orders are displayed (indicating the order size ofeach buy order) on one side of the number list based on their respectivebid prices and existing sell orders are displayed (indicating the ordersize of each sell order) on the other side of the number list based ontheir respective offer prices. Thus, in such embodiments, the existingbuy order having the highest bid price is physically located above otherexisting buy orders, and such buy order may be referred to as the topbuy order or the buy order at the top of the buy order stack. Further,in such embodiments, the existing sell order having the lowest offerprice is physically located below other existing sell orders. However,for the purposes of the present document, despite being physicallylocated below the other existing sell orders, the existing sell orderhaving the lowest offer price may be referred to as the top sell orderor the sell order at the top of the sell order stack. Thus, it should beunderstood that in some situations, references to the “top order” or the“top of a stack” may refer to the best existing order or the order atthe front (or in the example embodiment discussed above, at the physicalbottom) of a stack of orders.

Similarly, when one or more buy orders 24 are removed from a buy orderstack (such as when such buy order(s) are cancelled or executed (i.e.,traded) with one or more buy orders 24, for example), trading system 30may determine whether to (a) promote the highest remaining buy order 24in the buy order stack to the top of the buy order stack, or (b) to notpromote the highest remaining buy order 24 in the buy order stack to thetop of the stack, but rather to leave the one or more positions in thebuy order stack above the highest remaining buy order 24 open, and tosend an alert message 40 to any trader 20 that subsequently submits asell order 26 that would naturally trade with the outlying buy order 24.

In some embodiments, trading module 50 determines whether the tradingorder 22 in question is an outlying order by electronically determiningwhether the price of the trading order differs from one or more otherprices by more than one or more threshold values 60. For example,trading module 50 may determine whether a sell order 26 in question isan outlying order by electronically determining whether the price of thesell order 26 exceeds the price of the top current buy order 24 (i.e.,the buy order 24 currently at the top of the buy order stack) by morethan a threshold value 60, such as discussed above with reference toFIG. 2. As another example, trading module 50 may determine whether asell order 26 in question is an outlying order by electronicallydetermining whether the price of the sell order 26 exceeds the price(s)of one or more previous trades in the electronic trading exchange ormarketplace by more than a threshold value 60, such as discussed abovewith reference to FIG. 3.

As yet another example, trading module 50 may determine whether a sellorder 26 in question is an outlying order by electronically determiningwhether the price of the sell order 26 exceeds an estimated currentmarket price by more than a threshold value 60. The estimated currentmarket price may be determined by trading module 30 based on variousdata, such as various market information 28 received from one or moremarket information sources 14. For example, in some embodiments, tradingmodule 30 may determine an estimated current market price for aninstrument by executing one or more algorithms (using market information28 as input) that estimate the current middle of the market (forexample, the midway point between the current bid market and the currentoffer market) for the instrument. In particular embodiments, the marketinformation 28 used as input for determining the estimated currentmarket price for a particular instrument includes information from oneor more futures markets that are related to the market for theparticular instrument.

In certain embodiments, to determine whether a particular sell order 26is an outlying order includes electronically determining each of thefollowing:

(a) Does the offer price of the sell order 26 exceed the bid price ofthe top current buy order 24 in the buy order stack by more than a firstthreshold value 60 a?

(b) Does the offer price of the sell order 26 exceed the price(s) of oneor more recent trades in the electronic trading exchange by more than asecond threshold value 60 b? and

(c) Does the offer price of the sell order 26 exceed an estimatedcurrent market price determined by trading module 30 by more than athird threshold value 60 c?

In some embodiments, first threshold value 60 a, second threshold value60 b, and third threshold value 60 c are the same. In other embodiments,one or more of first threshold value 60 a, second threshold value 60 b,and third threshold value 60 c are different from the others. Inaddition, as discussed above, each of the threshold values 60 a, 60 b,and 60 c may vary over time according to market conditions. For example,trading module 30 may vary threshold values 60 a, 60 b, and 60 c overtime based at least on market information 28 received from variousmarket information sources 14.

In one embodiment, trading module 30 determines that a particular sellorder 26 is an outlying order if it is determined that at least one ofthe three questions (a), (b) and (c) listed above are answered in theaffirmative. In another embodiment, trading module 30 determines that aparticular sell order 26 is an outlying order if it is determined thatat least two of the three questions (a), (b) and (c) listed above areanswered in the affirmative. In yet another embodiment, trading module30 determines that a particular sell order 26 is an outlying order if itis determined that all three of the three questions (a), (b) and (c)listed above are answered in the affirmative. Thus, the standard fordetermining a trading order 22 to be an outlying order may varyaccording to the particular embodiment.

It should be understood that the techniques discussed above fordetermining whether a sell order 26 is an outlying sell order andsending an alert message to a trader 20 submitting a subsequent buyorder 24 may be similarly used to determine whether a buy order 24 is anoutlying buy order and sending an alert message to a trader 20submitting a subsequent sell order 26.

Threshold Values

As discussed above, threshold values 60 may vary over time at leastaccording to market conditions. For example, a threshold value 60 for aparticular market may be determined and/or updated based on thehistorical or current volatility of that market or one or more relatedmarkets. In some embodiments, a threshold value 60 for a particularmarket may be determined and/or updated based on market information 28received from one or more market information sources 14. Such marketinformation 28 may indicate the historical or current volatility of thatmarket or one or more related markets. In addition, such marketinformation 28 may include current and/or historical financial ormonetary information, such as interest rate information and informationregarding currencies, for example.

Trading module 30 may use such market information 28 as input forvarious algorithms to estimate, for example, the current volatility orcurrent price of the market in question. Trading module 30 may thendetermine and/or update the threshold value(s) 60 for that market basedon the current estimated volatility or price for that market. In someembodiments, trading module 30 may receive market information 28 in realtime or substantially in real time and may thus update threshold values60 in real time or substantially in real time according to currentmarket conditions.

Although an embodiment of the invention and its advantages are describedin detail, a person skilled in the art could make various alterations,additions, and omissions without departing from the spirit and scope ofthe present invention as defined by the appended claims.

What is claimed is:
 1. An apparatus comprising: at least processor; acomputer-readable medium coupled to the at least one processor, thecomputer-readable medium storing software that when executed by the atleast one processor, directs the at least one processor to: receivetrading orders, wherein the trading orders have associated prices; basedon the price of a particular one of the trading orders, determinewhether the particular trading order is an outlying order; and if it isdetermined that the particular trading order is an outlying order, atleast one of: at least temporarily prevent within an electronic displaya promotion of the particular trading order within a trading orderstack, at least temporarily not display within the electronic displaythe particular trading order within the trading order stack, and atleast temporarily modify within the electronic display an appearance ofthe particular trading order as compared to other trading orders withinthe trading order stack.
 2. A method comprising: at least processor; acomputer-readable medium coupled to the at least one processor, thecomputer-readable medium storing software that when executed by the atleast one processor, directs the at least one processor to: receiving byat least processor trading orders, wherein the trading orders haveassociated prices; based on the price of a particular one of the tradingorders, determining by the at least processor whether the particulartrading order is an outlying order; and if it is determined that theparticular trading order is an outlying order, at least one of: at leasttemporarily preventing by the at least processor within an electronicdisplay a promotion of the particular trading order within a tradingorder stack, at least temporarily not displaying by the at leastprocessor within the electronic display the particular trading orderwithin the trading order stack, and at least temporarily modifying bythe at least processor within the electronic display an appearance ofthe particular trading order as compared to other trading orders withinthe trading order stack.